What Does Sportsman's Warehouse Debt Look Like?

Over the past three months, shares of Sportsman's Warehouse Inc. SPWH moved higher by 36.22%. Before we understand the importance of debt, let's look at how much debt Sportsman's Warehouse has.

Sportsman's Warehouse's Debt

Based on Sportsman's Warehouse’s balance sheet as of June 5, 2020, long-term debt is at $23.76 million and current debt is at $120.40 million, amounting to $144.16 million in total debt. Adjusted for $22.09 million in cash-equivalents, the company's net debt is at $122.07 million.

Investors look at the debt-ratio to understand how much financial leverage a company has. Sportsman's Warehouse has $662.33 million in total assets, therefore making the debt-ratio 0.22. Generally speaking, a debt-ratio more than 1 means that a large portion of debt is funded by assets. As the debt-ratio increases, so the does the risk of defaulting on loans, if interest rates were to increase. Different industries have different thresholds of tolerance for debt-ratios. For example, a debt ratio of 35% might be higher for one industry, whereas normal for another.

Importance of Debt

Debt is an important factor in the capital structure of a company, and can help it attain growth. Debt usually has a relatively lower financing cost than equity, which makes it an attractive option for executives.

However, due to interest-payment obligations, cash-flow of a company can be impacted. Equity owners can keep excess profit, generated from the debt capital, when companies use the debt capital for its business operations.